Chapter 1 (concepts) 3.

State interfere with private rights and

property.
4. Legislative in nature and character.
Taxation
5. There is an equivalent compensation
- Process by which independent state received by person affected.
imposes burdens upon subjects and
Distinctions of the 3 Inherent Powers
objects within its jurisdiction for the
purpose of raising revenues to carry out Taxation Police Eminent
the legitimate objects of government. Power Domain
- To apportion the cost of government for Nature Enforced For general Take private
those who are privileged to enjoy contribution to welfare property for
benefits. raise govt public use with
funds. compensation.
- Power is inherent and essential for the
Authority Government Government Granted to
existence of every government. –
only only public service /
necessity / necessary attribute of utility
sovereignty. company
- State’s power to tax should NOT be Purpose Support of the Promotion of Take private
interpreted as a “grant of power” gov’t general property for
- TAXES, are enforced proportional welfare public use
contributions levied by the law making through
regulation
body by virtue of its sovereignty for the
Persons All person, All person, Owner of the
support of the government and all public Affected property and property and personal
needs. exercises may exercises property that
be subject. may be is particularly
3 Inherent Powers subject. comprehended
1. Police Power Scope Plenary, General Power to take
supreme, power is to private prop.
 For peace and order
comprehensive make and
 Promoting public welfare by implement
restraining and regulating the law
use of liberty and property. Effect Contribution No title / Transfer of
 Exercised only by government. become a part tranfser. title to
2. Power of Taxation of the public Restraint on property
fund injurious use
 Power which the state raises
of property
revenue to defray necessary Benefits Form of Maintenance Market Value
expenses of government. Received protection and of a healthy of the property
3. Power of Eminent Domain. benefits economic
 Acquire private property for received form standard
public purpose. government
Amount of No Limit Cover cost Paid equivalent
Similarities: Impositio of license of the fair
n and expenses value
1. Inherent of police
2. Exist Independently although conditions surveillance
are prescribed by the constitution.
Purposes of Taxation

1. Primary: Revenue or Fiscal Purpose

 On the part of government –
3) Benefits Received / Reciprocity
provide funds and property Theory
which to promote the general  Responsibility of the state and
welfare and the protection of its people
its citizen  Doctrine of Symbiotic
 Can run its duty through Relationship – taxes are what
public funding which can be we pay for a civilized society.
collected in the form of tax.
Manifestation of Lifeblood Theory
2. Secondary: Regulatory Purpose
 Raise revenue for the support of a. No estoppel against the government
the government b. No court except Court of Tax Appeals
a. Promotion of General shall have authority to grant an
Welfare injunction to restrain the collection.
b. Reduction of Social (collection should not be tainted).
Inequality c. Taxes could not be the subject of
c. Economic Growth compensation or set off
 Taxes is not a debt or contract
Theory and Basis of Taxation
 Compulsory rather than a matter
1) Necessity Theory of bargain
 Existence of the government is a  No debtor/creditor relationship
necessity between government and
 It is to preserve the sovereignty taxpayer
and a means to give the d. Right to select objects of Taxation
citizenry protection which the  Subject to be taxed
government is supposed to  Purpose of the object to be
provide. taxed
 “power is predicated upon  Amount or rate of tax
necessity”  Kind of tax
2) Lifeblood Theory  Apportionment of tax
 Power of taxation is essential,  Situs (place) of tax
without it, the government can  Manner, means and agencies of
neither existence nor endure. collection.
 Tax is an imperious need for e. Valid tax may result in the destruction
the government to perform its of taxpayer’s property
basic functions of serving and  It is not literally a destruction of
protecting its people. taxpayer’s property, it is only
because the government can
compel payment of tax and
forfeiture of property through
the exercise of police power.
 LIMITATION OF TERRITORIAL
JURISDICTION - Tax laws cannot operate
beyond territorial limits
*ESSENTIAL ELEMENTS OF TAX EXEMPTION (IMMUNITY) OF
GOVERNMENT ENTITIES, AGENCIES
I. Enforced Contribution
AN INSTRUMENTALITIES.
II. Payable in Money – legal tender /
progressive system  Agencies performing governmental
III. Proportionate in Character (ability functions
to pay theory / theoretical justice  Agencies / GOCC’S performing
IV. Levied on persons, property, or the proprietary functions are subject to tax
exercise of right or privilege unless expressly exempted.
V. Levied by law making body –
 Following are tax exempt:
Legislative function
1. GSIS (Government Service
VI. Levied for public person.
Insurance System)
ASPECTS OF TAXATION 2. SSS (Social Security System)
3. PHIC (Phil. Health Insurance
1. Levying – imposition of tax Corporation
2. Assessment – determination of correct 4. PCSO (Phil, Charity
amount of applicable tax Sweepstakes office)
3. Collection – essentially administrativc 5. RA 10026 (local water district)
in character.
*Power of tax is the strongest among the
EXCEPTION TO NON – DELEGATION inherent powers of the state.
RULE:
CLASSIFICATION OF TAX
a. “Delegation to the President”
As to scope:
 Congress may authorize, by
law, the president to fix, within National Local
specified limits and subject to Authority Inherent – imposed Delegated – imposed
such limitations and restrictions under the National by local government
b. Delegation to Local Government Internal Revenue units
 Power to impose taxes and fees Nature Legislative in nature Legislative in nature
through enactment of through enactment of
with the limitations and
tax laws by the local ordinances by
guidelines given by the congress and senate the local legislative
congress. branch
c. Delegation to Administrative Agencies As to subject matter: (levied on person,
(taxing process not legislative in nature) property or exercise of right and privilege)
 Power to value property
 Power to assess and collect tax a. Personal / Poll / Capitation – fixed
amount imposed on individual residing
 Power to perform details of
within a specified territory.
computation, appraisement or
adjustment.
 b. Property – tax imposed on property b. Equal Protection of Law – persons
(real / personal), method of and properties were treated the same
apportionment in law.
c. Excise – tax imposed on sin products c. Rule of uniformity and equity –
and non - essential goods. uniform application and operation /
does not require absolute identity or
equality under all circumstances.
d. Progressive System – tax laws shall
ELEMENTS OF SOUND TAX SYSTEM:
place emphasis on direct taxes
1. Fiscal Adequacy – government should rather than indirect taxes.
meet its expenditure / budget to sustain e. Prohibition against imprisonment
the level of public services. for non - payment of poll tax
2. Theoretical Justice / Equity – Ability  Punishable only by surcharge
to pay principle, base on its capability to  Poll Tax: fixed amount imposed
pay tax – progressive tax on residents within specified
3. Administrative Feasibility – Tax territory regardless citizenship,
should be clear and collected properly. business or profession.
Tax laws must be capable of effective f. Prohibition against impairment of
and efficient enforcement. Philippine tax obligation of contracts
is complicated  Terms / conditions were
changed by law without the
Limitations on the State’s Power of Tax consent of other.
g. Prohibition against infringement
1. Inherent Limitations – restrictions
of religious freedom.
arising from very nature, exist despite
h. Prohibition against appropriation
the absence of an express constitutional
of proceeds of taxation for the use,
provision.
benefit or support of any church.
a. Purpose must be public in nature –
i. Prohibition against taxation of
governmental purpose (lifeblood
religious, charitable, and
theory)
educational entities
 Congress has the power to
 Exemption from real property
determine whether the purpose
tax only – not limited to
is public or private.
property but extends to facilities
b. Legislative enactment / imposition /
necessary for the
levying of tax measure is cannot be
accomplishment of purpose.
delegated.
c. Territorial Limitation – property FACTORS TO CONSIDER IN
outside jurisdiction cannot receive DETERMINING THE SITUS OF
any protection from the state. TAXATION:
2. Constitutional Limitations
a. Due process of law – there must be I. Subject Matter (person, property or
valid law and measure should not be activity)
unconscionable and unjust. II. Nature of the Tax
III. Citizenship
IV. Residence of the Taxpayer
 V. Source of Income Permit / License Fee Tax
VI. Place of Excise, Business or Occupation For regulation For revenue
being taxed. Police Power Taxing Power
Limited to necessary No limit
*Only indirect tax may be shifted; direct taxes expenses of regulation
cannot be shifted Right of reward of an Imposed also on persons
officer for specific or property
services
Legal compensation or Enforced contribution
Examples: reward of an officer assesses by sovereign
authority to defray public
1. Person – residence expenses
2. Real Property – location Failure to pay = makes Enforced contribution
3. Personal Property – location / Place of the act or business assesses by sovereign
sale or transaction illegal authority to defray public
expenses
4. Intangible Personal Property – domicile
of the owner / place or country where
such intangibles are exercised. Debt Tax
5. Income Based on contract Based on law
*Occupation – where it is engaged in Paid in kind Payable in money
*Transaction – where it took place Assignable / may be Cannot be assignable /
6. Business – place where business is subject of set off or subject of set off or
located. compensation compensation
Cannot be imprisoned Imprisonment is a
7. Gratuitous Transfer – residence or
for non - payment of sanction for non -
citizenship of taxpayer / location of debt (except arises from payment of tax
property crimes)
Draw interest when Does NOT draw interest
Toll Tax stipulated or when of except when delinquent.
Demand of Proprietorship Demand of sovereignty prescription default
Paid for the use of another Paid for the support of
property government
Amount is based on cost of Based on the necessities of DOUBLE TAXATION
maintenance of public the state
improvement  Strict Sense – direct duplicate taxation
Maybe imposed by private Imposed only by state  Broad Sense – indirect double taxation
individuals or government
*it means taxing twice which was prohibited by
the constitution
Penalty Tax
To regulate conduct Aimed at rising revenue  Same taxing authority
Sanction Obligation  Same purpose
Imposed by government or Imposed only by
 Same year or taxing period
private individuals government
 Same subject or object
 Same kind / character of the tax
Revenue Tax
Amount collected Amount imposed SOURCES OF TAX LAWS

1. Constitution
 2. National Internal Revenue Code 5. Provisions of taxing act are not to be
3. Tariff and customs code extended by implication
4. Local Government Code (Book II) 6. Tax laws operate “prospectively” unless
5. Local tax ordinances / city or municipal the purpose of the legislature to
tax codes retrospective effect is expressly declared
6. Tax treaties and international 7. Tax laws are special laws and prevail
agreements over a general law.
 It is in order to avoid or
minimize the effects of double Application of Tax Laws
taxation. GR: Prospective in operation
7. Special laws
8. Decision of Supreme Court and the E: may nevertheless operate retroactively
Court of Tax Appeals provided that, it is expressly declared.
9. Revenue Rules and Regulation and Taxpayer’s Suit
Administrative rulings and opinions
 Case where the act complained involves
Purpose of Rules and Regulations illegal disbursement of public funds
a. To properly enforce and execute the derived from taxation.
laws  GR: not only persons individually
b. To clarify and explain the law affected but also taxpayers have
c. To carry into effect the law’s general sufficient interest of preventing the
provisions by providing details of illegal expenditures of money raised by
administration and procedure taxation.

Requisites for Validity of Rules and

Regulations

a. Not be contrary to law and the

constitution
b. Must be published in the Official
Gazette or a newspaper of general
circulation.

Construction of Tax Laws

1. Public purpose is always presumed

2. If law is clear, apply it in accordance to
its plain and simple tenor.
3. A statute will not be construed as
imposing a tax unless it does so clearly
and expressly
4. In case of doubt, construed most
strongly against the Government and
liberally in favor of the taxpayer
 Non - resident Citizens

1. Physical presence abroad with a definite

intention to reside.
2. Leaves the country during taxable year
to reside
 As an immigrant
 Employment on permanent
basis
Chapter 2 (Income tax for  For work and derives income
individuals) from abroad which requires to
work there.
Individual taxpayers – natural persons with 3. Have stayed outside the country for 183
income derived from within the territorial days and more.
jurisdiction of taxing authority. – tinitignan kung  Non – resident who arrives in
ano ang citizenship the Philippines anytime during
taxable year to reside
 Resident Citizens (RC) permanently shall be considered
 Nonresident Citizens (NRC) a NRC.
 Resident Aliens (RA)
 Nonresident Aliens (NRA) Overseas Contract Worker (OCW) /
o Engaged in trade / business Overseas Filipino Worker (OFW)
(NRA – ETB)
 Classified as NRC
o Not engaged in trade / business
 Duly registered with the Philippine
(NRA – NETB)
Overseas Employment Administration
Importance of Classification: (POEA) with a Valid Overseas
Employment Certificate (OEW)
 Situs of income  Same as to Seamen or seafarers but with
 Manner of computing tax Seafarers Identification Record Book
 Treatment of certain passive incomes (SIRB) or Seaman’s Book issued by the
 Allowable deductions maritime Industry Authority (MARINA)
 References in the tax code
Alien
Citizen of the Philippines
 Foreign-born who is not qualified to
1. Born by birth with a Filipino citizen acquire Philippine citizenship
parents.
2. Born before January 17, 1973 of Resident Aliens
Filipino mother who elects Philippine
citizenship upon reaching age of  An individual who is a resident in the
maturity. Philippines but not a citizen.
3. Acquired Philippine Citizenship after  An alien with no definite intention of his
birth (in accordance with Philippine stay in the Philippines
law)  Purpose requires an extended stay for its
accomplishments
Non – resident Aliens Regular income amounting more than 250 000
in taxable year but with gross sales/receipts and
 Aliens who come to the Philippines for other non-operating income not exceeding VAT
definite purpose. threshold of 3 000 000 – shall have the option to
 Engaged in trade or business, have avail of 8% tax in excess of 250 000
business income; Stayed for a period of
more than 180 days during taxable year  Exceeds VAT threshold, subject to basic
 NETB = stayed for less than or equal to tax
180 days and not deriving business  Percentage tax due on 3M shall be
income in the Philippines; subject to collected without penalty, if timely paid
25% income tax on gross income from on the due date.
all sources (Ordinary or Passive income)
Final Withholding Tax
TYPES OF INCOME:
 Subject to final taxes
 Ordinary / Regular Income  Prescribed on “certain income” and not
- Income such as Compensation creditable against the income tax due of
income (salaries or wages), the payee income subject to regular
business income, income from rates.
practice of profession, income  Amount of tax withheld = constituted as
from sale, dealings of property, a full and final payment
miscellaneous income and  LIABILITY FOR PAYMENT of tax
passive income other than rests primarily on the Payor as a
subject to final taxes. (Operation withholding agent.
mainly ng business)  Failure to withhold, the deficiency tax
- Subject to Graduated tax / basic shall be collected from the payor /
tax withholding agent.
 Passive Income  Payor required to issue final withholding
- Subject to final withholding tax tax
- Interest income, dividend  Payee not required anymore to file
income, royalties, prizes and income tax return, these incomes will no
other winnings. longer form par of the payee’s “taxable
 Sale of Capital Assets income”
- Subject to capital gains tax
Deposit Substitute
- Sale of shares of stocks of a
Domestic Corporation not  Alternative form of obtaining funds
traded in local stock exchange from the public other than deposits for
- Sale of Real Property the purpose of re-lending or purchasing
of receivables and other obligations or
Self-Employed &/or Professionals (SEP)
financing their own needs or the need of
 Not under employer-employee their agent or dealer.
relationship  Mere issuance of government debt
 Can usually be measured against an instruments or securities is falling
established set of standards within the coverage.
  Bureau of treasury issued instruments - Subjected to regular income tax
(treasury bonds, bills and notes) is (30%) if received by domestic
classified if it is to traded or exchanged corporation and resident foreign
in the secondary market. corporation

Informer’s Reward

 Voluntarily gives definite and sworn

information about fraud and violation,
Long Term Deposit / Investment shall be rewarded a sum equivalent to
10% of revenues, surcharges or fees
 Maturity period of not less than 5 yrs.
recovered or/& fine or penalty imposed
 Should be issued by banks only to
and collected; or 1M, whichever is
individuals and not be under the name of
lower.
a corporation or bank or trust
 Reward provided shall be paid under the
department of bank
rules and regulations issued by Secretary
Requisites / Conditions for Exemptions: of Finance, upon recommendation of
Commissioner.
a. RA & NRA – ETB depositor or  Discovery and Seizure of Smuggled
investor Goods – cash reward is equivalent to
b. Certificates shall be under the name 10% of FMV of the smuggled and
of a corporation or bank or trust confiscated good or 1M, whichever is
department of bank lower shall be given to the person who
c. Evidenced by certificates by BSP discovered.
(duly licensed)  Cash rewards are subjected to income
d. Issued by banks only not by other tax and collected as final withholding
financial institutions. tax with a rate of 10%
e. Not less than 5 yrs. (without
interruption) Gains on sales of Assets
f. In denominations of 10 000 and
 Ordinary Asset
other denominations prescribed by
- Stock in trade or other property
BSP.
of a kind included in the
g. Should not be terminated by original
inventory of taxpayer
investor before the 5th year,
- Property used in trade, subjected
otherwise subjected to final taxes.
to depreciation.
h. EXCEPT specifically exempted by
- Real property held primarily for
law or regulations, gains from
sale
trading, foreign exchange gain shall
- Real property used in trade or
not be covered by income tax
business.
exemption.
- Gains on such sale is subject to
i. NETB = subjected to final tax
Graduated tax rate.
(25%)
 Capital Assets
j. Non – resident foreign Corporation
- All other property not included
= subjected to final tax (30%)
in ordinary asset.
- Subject to Capital Gains Tax
 - No CGT in case of Capital Loss exchange or disposition of the
taxpayer’s principal residence is
Capital Gains on Sale of Real Properties exempt from capital gains tax.
 Requisites for Tax Exemption:
 Whichever is higher between FMV /
- Proceeds are fully utilized
Zonal Value or Gross selling price
(commenced with the
multiplied by 6%
construction) in acquiring or
 Sale of Real Property to the Government
constructing new principal
- 6% CGT or Basic Tax
residence
 Sale of Principal Residence
1. Within 18 calendar months from
- Exempt from CGT
date of acquisition
Other Percentage Tax (OPT)  Expenses paid for by
the seller in effecting
 Sale of shares of stock of domestic the sale shall be
corporation listed in local stock considered as part of the
exchange = not subject to income tax amount utilized.
but on Stock Transaction Tax (STT) – 2. Historical cost or adjusted basis
6/10 of 1% of Gross Selling Price shall be carried over to the new
principal residence built.
Capital Gains subject to Basic Tax
3. BIR shall have been duly
 It is also subject to additional tax rules notified within 30 days from
such as holding period and net capital date of sale / disposition (date of
carry – over notarization of document
 Sale of shares of Foreign Corporations evidencing transfer of property)
 Sale of real properties located abroad 4. Tax exempt can only be availed
 Sale of other personal assets such as once every 10 yrs.
cars, jewelries etc.
Creditable Withholding Tax
Sale of Principal Residence
 Not internal revenue tax but a method of
 Principal Residence “collecting income tax in advance”
- Family home; permanent  Creditable: Taxes withheld are
dwelling deductible from tax due.
- Absence: where individual  Example: Tax withheld by an employer
intends to return from compensation income of an
- Should be certified by Barangay employee.
chairman over the place or  Shall be filed and the applicable tax paid
Building administrator if not later than the last day of the month.
residence is a condominium or
Senior Citizen and Person with Disabilities
taxpayer’s address in his latest
tax return.  Required to file their income tax returns
- Certificate Authorizing and pay tax as they file the return.
Registraation (CAR) or Tax  If returnable income is in nature of
Clearance Certificate (TCC) compensation income but qualifies as
shall state that the said sale,
 minimum wage earner, shall be exempt - Minimum Wage
from income tax - Holiday Pay
 If gross income earned do not exceed - Overtime Pay
250k = shall be exempt from income tax - Night Shift Differential
and not required to file income tax - Hazard Pay
return but still liable for other taxes:
1. Interest income from any currency MWE with additional “Compensation” in
bank deposit (20%) and under excess of 90 000
expanded foreign currency deposit  13th month pay and other benefits
system (15%) received are exempt from income tax
2. Pre – termination of Long-term and creditable withholding tax. Total
deposit / investment (3%, 12%, exclusion shall not exceed 90k
20%)  Shall still enjoy the privilege of being an
3. 10% final withholding tax = all MWE
those in Cash and property  Intent is to free the low-income earner
dividends from the burden of tax
4. CGT from sales of share of stock
not traded in stock exchange (15%) MWE with additional “business” income
5. CGT from sale of real property (6%)
6. Other Taxes  Receiving other income except income
- VAT subject to final tax are not exempted
- SEP (rules of 3% and 8%) from income tax on their entire income
- Donor’s Tax – on all donations earned
made during calendar year
Hazard Pay given to MWE
- Estate Tax in event of death
- Excise Tax on certain goods  Exposures to hazards are compensable,
- Documentary Stamp Tax example are the ff.
1. Dangerous environmental elements
Benefits of Seniors and PWDs
2. Engaged in construction work,
 20% discount and exempt from VAT logging, fire-fighting, etc.
 ₱500 monthly pension- indigent seniors 3. Engaged in manufacture or handling
 Death benefit assistance of explosives
 5% discount on facilities 4. Exposed to biological agents
 Income tax exempt if gross income
Filing of Income Tax Returns (ITR)
earned do not exceed 250k.
 Basic Tax
Minimum Wage Earners (MWE)
1. Purely compensation income
 Or Statutory minimum wage earner earners
(SMW) - On or before April 15 of
 Private worker paid the SMW or public succeeding year
employee with compensation income of 2. Business Income Earners (income
not more than SMW in the non – from practice of profession)
agricultural sector - Quarterly tax
 Exempt from income tax on: - 1st = May 15
 - 2nd = August 15 (45 days after -
File the return with AAB
end of quarter) -
No AAB, filed directly with re
- 3rd = November 15 (45 days revenue collection officer or
after end of quarter) duly authorized treasurer
- 4th = April 15 of succeeding - There’s none, fling of the return
year will be at the office of the
 Final Withholding Tax commissioner.
- The return shall be filed and  No payment returns
paid not later than the last day - File return with RDO where
of the month taxpayer is registered
 Capital Gains Tax - Filed late, shall be accepted by
1. Share of stock RDO but shall be filed with an
 Ordinary Return – 30 days AAB of collection officer /
after transaction Deputized Municipal Treasurer
 Final Consolidated Return –
Person required to File Income Tax Return
on or before April 15
2. Real Property – 30 days following 1. Engaged in business, or practice of
each sale or disposition profession
2. Deriving compensation from 2 or more
Manner of Filing
employers concurrently
a. Manual filing 3. Deriving compensation income resulting
b. Electronic filing and Payment System to collectible or refundable return
(EFPS) 4. Deriving other non – business, in
c. eBIR forms addition to compensation income not
otherwise subject to final tax
Payment 5. Receiving purely compensation income
but whose spouse is required to file
 Income tax payable shall be paid at the
income tax return
time the return is filed.
6. NRA – ETB or non-profession related
 Tax due is in excess of 2 000, may elect
income
to pay in 2 equal installments
1st = at the time of filing Person not required to File Income Tax
2nd = on or before October 15 following Return
the close of the calendar year.
1. Purely compensation income = does not
Place of Filing Income Tax Return exceed 250k
2. Income tax has been correctly withheld
 Filed and paid with any of the ff:
by his employer
1. Authorized agent banks (AAB)
3. Sole income has been subject to final
2. Revenue district officer (RDO)
withholding tax
3. Collection agent
4. MWE
4. Duly authorized city or municipal
treasurer in which taxpayer has his Certificate of Withholding by the Employer
legal residence or principal place.
 With payment returns
  Employer is required to furnish
employees BIR form 2316 on or before
January 31
 If employment is terminated = on last
payment of compensation made.
 Employers shall submit the duplicate
copy of BIR form 2316 to the BIR not
later than February 28
 Penalty of 1 000 each failure, maximum
amount of 25 000 for all such failure
during the calendar year
 Fails to comply, the filing submission of
BIR 2316 for 2 consecutive years,
employer shall be liable to a fine in
amount of 10k and suffer imprisonment
not less than 1 year but more than 10
years
 In settlement, compromise fee of 1 000
for each BIR form 2316 not filed.

Substituted Filing of Income Tax Returns

 May no longer file ITR on or before

April 15 provided taxpayer has:
1. Receiving purely compensation
income, regardless of amount
2. Amount of income tax withheld by
the employer is correct (tax due =
tax withheld)
3. Only one employer during taxable
year
4. If married, spouse also complies
with all 3 aforementioned
conditions, otherwise receives no
income.
 and the problem of allocating benefits is
avoided.
 Shall be withheld and paid by employer
on or before 10th day of the month
following the calendar quarter.

Items of Fringe Benefits subject to Tax

1. Housing
2. Expense account
3. Vehicle of any kind
4. Household Personnel
5. Interest on loan at less than market rate
(extent of difference b/w market rate
and actual rate granted.
Chapter 3 (fbt) 6. Membership fees in social and athletic
 Employee income that were effectively clubs or similar organizations
tax were those given in cash 7. Expenses for foreign travel
 Additional tax and non-cash were 8. Holiday and vacation expense
virtually untaxed given rise to inequity 9. Educational Assistance
in the distribution of tax burden 10. Life or Health insurance and other non-
 Untaxed perks = tax avoidance life insurance premiums.
 To enhance progressivity of income tax
Tax exempt Fringe Benefits
and broaden tax basis
1. Income tax under any special laws:
Definition of FBT
- Contributions under SSS law
 Compensation: remuneration for - Contributions under GSIS law
services performed - Similar contributions under
 Granted by an employer in cash or in existing law
kind, in addition to basic salaries. - Premiums for group insurance
 Form of pay to supplement a stated pay of employees
for the performance of services. 2. Required in nature of, or necessary to
 Benefits given or furnished to trade, business or profession
managerial or supervisory employee. 3. De minimis benefits
4. For the convenience or advantage of the
Nature of FBT employer (irrespective of Employee’s
rank)
 Monetary burden imposed by
sovereignty on any good / other benefit Computation of FBT
furnished / granted by an employer
 Final tax imposed on employee and  35% rate but for NRA – NETB (25%)
withheld by an employer (35%) 1. Evaluating the value of the benefit
 It is collected at the firm’s level rather granted
than at the taxpayer’s level to facilitate 2. Determining the proportion or
tax administration = valuation is easier, percentage of benefit subject to FBT
 3. Determining the grossed-up 1. Monetized unused “vacation leave” not
monetary value of FB by dividing exceeding 10 days during the year
monetary value of FB by gross - As well as “sick leave” shall be
monetary value factor added to “other benefits” with
4. Multiplying grossed-up monetary 90k ceiling. Amount exceeding
value factor by FBT rate. 90k shall be subject to basic and
creditable withholding tax.
FBT Tax 2. Monetized value of vacation and sick
leave, credits paid to government
 Grossing up FB is to align the tax
officials and employees
treatment of FB with salaries and wages.
- Monetized unused “vacation
 Compensation incomes are included in
and sick leave” credits to
the computation
government shall be exempt
 Grossed-up monetary represents the
from tax compensation income.
entire income earned by the employee.
3. Medical allowance not exceeding 1 500
Valuation of FB per semester or 250 a month
4. Rice subsidy not more than 2 000 per
 Granted in money, value is the amount month or 1 sack rice per month
granted 5. Uniforms not exceeding 6 000 per
 Granted in property or transfer annum
ownership, value is FMV of property 6. Medical assistance not exceeding 10 000
 Granted in property but no transfer of per annum
ownership, value is equal to 7. Laundry allowance not exceeding 300
depreciation value of the property. per month
8. Achievement awards, in the form of
Deductible expense of the employer
tangible personal property and annual
 Given to rank and file employee or to monetary value not exceeding 10 000
supervisory or managerial employee but 9. Christmas and majo0r anniversary
not subject to FBT, deduction is the celebrations not exceeding 5 000 per
monetary value of the FB. employees per annum
 If FB is given to supervisory or 10. Daily meal allowance for overtime work
managerial employee, it is subjected to and night /graveyard shift not exceeding
FBT, deduction is the grossed-up 25% basic minimum wage
monetary value. - Subjected to income tax
however, meal allowance and
De Minimis Benefits (DMB) lodging furnished are exempt
from tax if for advantage or
 “courtesy” discount on purchases
convenience of the employer.
 Not considered as compensation subject
11. Benefits received by virtue of a
to income tax and consequently to
collective bargaining agreement (CBA)
withholding tax
and Productivity incentive schemes
Ff. is considered DMB not subject to income provided that the two do not exceed 10
tax 000 per employee per taxable year.
90k ceiling for 13th month pay/bonuses and performance of his duties are not
“other benefits” compensation subject to withholding if
ff. conditions are satisfied:
 13th month pay and other benefits - Ordinary and necessary
received are exempt from income tax expenses paid in the pursuit of
and creditable withholding tax. Total trade, business or profession
exclusion shall not exceed 90k - Required to account / liquidate
 Other Benefits for the foregoing expenses
- Christmas bonus
- Productivity incentive bonus
- Loyalty Awards
- Gifts in cash or in kind and
other benefits or similar nture. Representation and Transportation
 Gross income is not applicable to: Allowances (RATA)
- Self-employed individuals
- Income generated from business  Considered reimbursements for the
expenses incurred in the performance
Excess of DMB over their respective ceilings one’s duties. Excess of RATA, if not
 Benefits not included shall not be returned = constitutes taxable
considered DMB but should fall under compensation income of the employees.
the classification of “other benefits” and  Expenses which are pre-computed and
is subject to 90 000 ceilings. are paid while on assignment or duty
 Excess of 90k would form part of an should not be subject to withholding tax
individual’s gross income and subject to  Allowances which are fix in amounts
income tax and applicable creditable and are regularly received as part of
withholding taxes their monthly compensation are subject
to basic tax
Fixed or Variable Allowances
Communication Allowance
 Received by public officer or employee
of private entity in addition to the  Not subject from FBT and tax on
regular compensation and is subject to compensation on the basis that
income tax and creditable withholding communication allowance is deemed
tax required by the nature.
 Expenses which are pre-computed on Non-Taxable Housing Benefits
daily basis and are paid while on an
assignment need not be subject to 1. Housing unit inside or adjacent (within
requirement of substantiation and to 50 meters) from perimeter of housing
withholding. premises.
- Shall be considered for the
Business related expenses / Allowances “convenience or advantage of
subject to liquidation the employer”
 Any amount paid specifically, expected 2. Temporary housing for a stay for 3
to be incurred by the employee in the months
3. Housing privilege of military officials
Other Fringe Benefits 6. The following shall not be treated as
taxable fringe benefits:
1. Expense Account - Fringe benefits exempted from
a. Paid for or reimbursed by employer income tax
are taxable FB. If were receipted in - Required by the nature of or
the name of employer and do not necessary to trade
partake the nature of “personal - For the convenience or
expenses” – should not be taxable as advantage of the employer
Fringe benefits. - Benefit to retirement, insurance
b. Not treated as taxable fringe and hospitalization benefit
benefits plans.
- RATA allowance given - Non – taxable housing benefits
regularly on a monthly basis are - Benefits given to rank and file
not taxable FB but subject to employees
basic tax - Other non-taxable benefits
2. Expenses for foreign travel
- In connection with attending Use of Aircraft and Helicopters
business meeting or average of
300 per day are considered  Owned and maintained by employer is
reasonable expense not be not taxable fringe benefit but treated as
subject to FBT. (such as cost of business expense
economy and business class Filing of Returns
airplane ticket)
- 30% of cost of first-class  10th day of the month following the end
airplane ticket shall be subject of the calendar quarter
to FBT.
- Absence of documentary
evidence in connection with the
SUMMARY:
business travel shall be treated
as taxable fringe benefits also in Subject to FBT
traveling expenses of family
members of employees.  Purpose is para sa kapakanan ng mga
3. Educational Assistance treated as employees, supervisory and up
taxable FB except:
Subject to Basic Tax
- Study is directly connected with
the employer’s trade and there is  Purpose is para sa operation mainly ng
a written contract. business.
- Employee’s dependents through
a competitive scheme under
scholarship program.
4. Membership dues or fees of
employees borne by the employer
5. Life or health insurance and other non-
life insurance premiums are treated as
taxable benefits